Business | Economy

Paul Volcker: Stimulus policies must stay

Berlin: White House adviser Paul Volcker said it's too soon for US policy makers to withdraw the stimulus measures and interest-rate cuts used to fight the worst slump since the Great Depression.

"This is not the time to take aggressive tightening action, either fiscally or monetary-wise," said Volcker in an interview in Berlin on Saturday, pointing to "high" unemployment.

"So I think we have to, as best as we can, maintain the expectation that it will be taken care of in a timely way."

The Federal Reserve and the Treasury are trying to withdraw the emergency measures introduced during the financial crisis without causing a relapse in the economy.

Recovery

Fed Chairman Ben S. Bernanke said on February 24 the US is in a "nascent" recovery that still requires keeping interest rates near zero "for an extended period" to spur demand once stimulus wanes.

At the same time, the Treasury's resources are under strain from the loss of 8.4 million jobs since December 2007, stimulus spending, wars in Afghanistan and Iraq and health care programmes.

The Obama administration predicts the budget deficit will swell to a record $1.6 trillion (Dh5.87 trillion) in the fiscal year ending September 30.

Proposals

Volcker, who wrote the blueprint for banking proposals that President Barack Obama sent to Congress last week, said US lawmakers must now prove they can pass the "comprehensive" legislation needed to prevent another financial crisis.

"That is the test," said Volcker. "Congress has not been very good at passing any comprehensive legislation in various areas."

Banking rules "shouldn't be a matter of partisan dispute. But everything seems to be infected by partisan disputes in the US now".